Last Christmas, LeapFrog had what could be considered a good problem. The Emeryville, California, company had introduced a fast-selling product called LeapPad, an interactive book that helps children learn to read. The device sold so well through toy retailers that many stores ran out of stock. As a result, customers turned to the company's Web site to buy the product.

But that's where things went bad: Because the company had never planned to take orders via the Web, LeapFrog didn't add e-commerce and fulfillment capabilities to its Web site until only a few months before the Christmas rush. As a result, LeapFrog couldn't handle the onslaught of orders. "It was a runaway success," remembers Mike Wood, 47, founder and president of the 130-person firm. "The retailers kept running out of the product, and we weren't prepared for the orders we were receiving on our Web site."

Jim Marggraff, president of LeapFrog's online division, says the company had a pretty small in-house customer care center. "[That made it impossible] to fulfill orders and respond to queries at the level of service we're used to," he says. It also didn't help that LeapFrog's phone system crashed during that time.

You Gotta Plan

LeapFrog wasn't the only dotcom unprepared for the holiday rush. For many netpreneurs, Christmas 1999 was anything but merry. Delivery problems and tech glitches were rampant for both large and small e-tailers-and so were negative responses from customers and the media.

Stacie S. McCullough, an e-commerce analyst at Forrester Research, says the main reason so many companies experienced problems is because they expanded their systems right before the Christmas rush-not leaving enough time to ensure smooth operation. Her advice: If you're planning to build a new site with new products, new categories, more graphics and an expanded back-end as late as this month, better hold off on those plans until after the new year. "If you haven't already experimented with running tests, running orders or checking to see what might happen during the Christmas rush, you should just stay with what you've got," she says. "Just focus on getting the product out." Wait until January to focus on launching a new site. "When you're working with a few hundred customers versus a few hundred thousand, you can work out all the kinks," she continues.

Taking into account last year's mistakes, many dotcoms started preparing early this year to ensure their sites could scale upward to meet the upcoming holidays. Marggraff, for example, says that LeapFrog began upgrading its site late last year and is now ready to handle the 2,000 percent increase in orders it expects at year-end. Says Marggraff, "In response to last year's unsolicited success, we've developed very strong e-commerce support."

First, LeapFrog upgraded its Web site to 10 times the bandwidth and three times the processing capacity it had in 1999. The company also substantially increased its customer support internally and now outsources call support to a 24/7 call center. And LeapFrog also has a new warehouse and a new fulfillment center.

Timing Is Everything

While experts insist distribution and fulfillment issues were the biggest failure last year for e-commerce companies, other performance problems popped up as well. Slow download times made shopping inconvenient, especially as many Web sites became so bogged down with traffic that they became almost inaccessible.

According to a study of 120 popular Web sites taken in November and December 1999 by Exodus Performance Optimization Solutions in Boulder, Colorado, a unit of Exodus Communications, which is a provider of Web site performance monitoring and measurement services, many sites had slow response times during the holiday season, with a degradation of performance as the season progressed. For example, during the week of November 28, the average download time was 4.8 seconds. But during the week of December 19, the average download time had slowed nearly 20 percent to 5.74 seconds.

Bob Merlo, vice president of marketing for Exodus, says the reason these sites were so slow was because "sites didn't anticipate their capacity needs well." Some sites, for example, featured too many graphics on their pages, and congested bandwidth only made it worse. Other sites had back-end servers that couldn't scale upward.

In order to prevent another online traffic jam this year, Merlo suggests adjusting Web pages and servers for holiday time to improve performance. One way to determine your Web site's performance under stress is to test it before the holidays hit. If the site is too slow or unavailable, you'll still have time to update your server or change the design.

Exodus, for example, sells a performance-monitoring solution called SM-WEB ($495), which helps netpreneurs see what it's like to visit or buy on their sites. It tracks site responsiveness, availability in different parts of the country and whether an ISP is slowing down the Web site. It can also track whether customer experience is similar on a competitor's site and pinpoint the source of a performance slowdown. SM-WEB also offers the Internet Index, which compiles the top 100 Inter-net sites and monitors their performance, allowing you to see how a Web site performs against the competition or the Internet as a whole.

Exodus also offers a stress- and load-testing service (prices vary) that generates simulated load on your site to let you see how well it functions during high-volume conditions. The service lets you learn your site's breaking point-and determine the number of users you can support with your architecture.

Or try Keynote Systems Inc., a measurement-services and performance-monitoring company in San Mateo, California-it offers Keynote Perspective, a service that measures the time it takes to download Web pages and compares that time with download times from 40 well-known Web sites. The price starts at $295 per month for each URL being tracked.

However you decide to check your site, be sure to check it before the holiday crunch. Says Merlo, "This will give you some time to go out and make alterations prior to the holiday season."

Be Forewarned

The FTC cracks down on delayed delieveries.

Making customers happy isn't the only reason you should ensure your site delivers products and customer service in a timely fashion-doing so could also prevent nasty legal disputes. Consumers might file class-action suits that allege false advertising, and state and federal government agencies have the power to levy sanctions.

The Federal Trade Commission says companies that don't deliver on their promises can be subject to fines. The agency enforces The Mail or Telephone Order Merchandise Rule, a 1975 measure that says mail-order merchants must ship purchases within the time specified in their advertising. If no shipment time is given, any customer has 30 days to receive a "properly completed order."

The rule also requires that companies notify consumers if orders cannot be shipped on time and also give new shipping dates. The customers must then be given an opportunity to cancel their orders for full refunds-unless they don't respond within 30 days of the first notice announcing delays. And if merchants cannot meet the new shipping dates, they must notify customers a second time. Unless customers expressly consent to the second delay, merchants by law must cancel their orders and refund their money. The rule affects traditional direct mailers and companies that receive sales orders through computers, faxes or other means used to transmit orders over phone lines.

Don't think you can disregard the rules: Earlier this year, the FTC said those e-tailers that failed to deliver on time during the holiday season could face sanctions from the agency and class-action lawsuits. On July 26, 2000, the FTC delivered on that promise, winning $1.5 million in civil penalties against seven online retailers. "We've received complaints here about problems with delivery, and we've been looking into the problem ourselves," says Elaine Kolish, associate director of enforcement at the FTC. For more information about this rule, log on to the FTC at www.ftc.gov.